30-year Treasury bond touches its lowest yield in about six weeks
The yield on the 10-year Treasury note on Tuesday slipped to a two-week low, while the 30-year bond yield touched its lowest in six weeks, as government-bond yields saw a broad retrenchment, driven partly by end-of-the-month portfolio rebalancing, market participants said.
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The Treasury buying, which pushed yields firmly lower on the session, hastened a multiweek downtrend for Treasury yields, even as a batch of mostly solid U.S. economic reports appeared to support the consensus view of two more interest-rate hikes by the Federal Reserve in 2017.
The yield for the 10-year Treasury note fell 3.2 basis points to 2.217%--its lowest since May 17, while the 30-year bond, or the long bond, lost 2.7 basis point to 2.886%, marking its lowest yield since April 19, according to Dow Jones data.
Bond prices move inversely to yields; one basis point is one hundredth of a percentage point.
The prospect of higher rates in theory should drive yields higher, because bond traders tend to dump existing bonds in expectation of richer returns from coming issuance. The Chicago Mercantile Exchange's FedWatch tool show traders see the chance of a June rate increase as a near certainty.
Analysts said a so-called month-end rebalancing, which sparked a wave of buying in bond markets, helped to push yields to down. About once a month, bond indexes replace maturing bonds with newer issuance. That monthly trend is amplified by similar purchases by fund managers who at the same time attempt to align their portfolios to the benchmarks.
"[The yield decline] is driven by flows from month-end buying more than anything else," said Bruno Braizinha, fixed-income strategist for Société Générale.
Americans boosted personal spending in April by 0.4%. Also, the core PCE deflator, which rules out volatile food and energy prices, came in at 0.2%, but showed that the annualized inflation rate slowed to 1.5% in March from 1.6% in April. Yields rose as a pickup in inflation can have a corrosive effect on bond's fixed-interest payments.
See: Consumers don't hold back in April as spending surges (http://www.marketwatch.com/story/consumers-dont-hold-back-in-april-as-spending-surges-2017-05-30)
Meanwhile, a reading of consumer confidence in May fell to 117.9, compared with 119.4 in April, according to the New York-based Conference Board. The index has dipped for the second month in a row. But any number above 100 points indicates optimism.
"Any significant data surprise may provide better placement for those adding duration exposure," said Ian Lyngen, head of U.S. rates strategy, referring to those aiming to invest in longer-dated government paper.
Among Fed speakers on the day, Dallas Fed President Robert Kaplan, a voting member of the central bank's interest-rate setting committee, early Tuesday said the lofty stock valuations weren't worrisome but hinted a "correction," (http://www.marketwatch.com/story/feds-kaplan-some-correction-for-us-stocks-could-be-healthy-but-high-levels-not-worrisome-yet-2017-05-30) or a 10% decline from a recent peak, could help the market and the economy maintain its multiyear expansion.
Fed. Gov. Lael Brainard said a weaker inflation outlook could keep the Fed from tightening monetary policy (http://www.marketwatch.com/story/feds-brainard-backs-another-rate-hike-soon-but-warns-inflation-could-shift-outlook-2017-05-30)but nonetheless felt an increase in the central bank's benchmark short-term rate should happen "soon."
Elsewhere, the European Central Bank President Mario Draghi issued support for continued monetary easing to reach the 2% inflation target for the eurozone on Monday. The ECB will meet on June 8 to decide on future purchases of European government debt and other assets, with many expecting it may signal a tapering in the offing. The German benchmark 10-year bond fell 2.5 basis points to 0.289%.
"Overall, we remain firmly convinced that an extraordinary amount of monetary-policy support, including through our forward guidance, is still necessary," Draghi said.
(END) Dow Jones Newswires
May 30, 2017 17:39 ET (21:39 GMT)